Duty-Free and Travel Retailers Must Understand Asia

Better infrastructure is necessary for the travel retail industry to capture the attention of consumers in Asia.

SINGAPORE — Better infrastructure is necessary for the travel retail industry to capture the attention of consumers in Asia, a region of people with varied tastes and spending habits. Retailers also need to make an effort to reach out to shoppers in the region beyond China, industry speakers said Monday.

More than 3,000 representatives from the travel, food and beverages, fashion, cosmetics and aviation sectors gathered here this week at the Tax Free World Association’s Asia Pacific Exhibition & Conference. With China’s economic dip on everyone’s mind, the focus for retailers is now understanding the rest of Asia as the region is set to become the fastest growing in terms of inbound travelers, with more than 535 million projected visitors by 2030, said Erik Juul-Mortensen, TFWA president, in an opening address.

“These developments are a timely signal to us that we should not simply concentrate on the biggest market, China,” he said. “We will have to stop thinking of Asia as a single entity and begin to understand the many different countries within it.”

Infrastructure — such as building high-speed railways and allowing for Internet access throughout travel ports and in plane cabins — within the Asia-Pacific region is also key to combating a slowdown. While the planned construction of more than 250 airports in the next 10 years is an encouraging move, more needs to be done, said Parag Khanna, a global strategist who emphasized the need to understand geopolitical trends.

“Without that fundamental connectivity that breeds from public investment and private investment, you will not be able to unlock the potential of those populations,” he said, adding that less than 2 percent of infrastructure planned in the region comes from private investments, an amount that is too small for the infrastructure growth needed.

Increasing urbanization, particularly in Southeast Asia, and a growing youth population are trends the industry should also capitalize on.

“The combination of people having money and being unlocked and empowered to travel and spend is what makes Asia so important,” Khanna added on the sidelines of the conference.

Despite its downturn in luxury spending, China is still a force to be reckoned with, as evidenced by the numbers presented by Zhao Feng, deputy general manager of China Duty Free Group. The group — which operates in 30 provinces throughout the country — generated total sales of 5.85 billion yuan, or about $937.9 million, from April 2011 to the end of 2013, she said. In August, the group plans to launch a duty-free shopping complex in Hainan, which will be the biggest commercial space for duty-free products in the world.

Zhao added that the trends within China are ever-changing, depending on the product and the consumer.

“Most consumers prefer brands that are well known or ‘traditional,’ like Estée Lauder is likely number one for cosmetics, and also Lancôme and Chanel,” she told WWD. “But the Chinese consumer demographic is also changing; the tastes are always changing. Perhaps we’ll see that the newer or less-established designers could become more appealing to young Chinese.”

Young consumers are a demographic that need to be properly understood, said Jorge Rodriguez, director of brand development consultant Brand Alliance, which recently completed a yearlong survey into the spending habits of Gen-Yers stopping through Singapore’s Changi Airport.

“They have a balance of being knowledgeable — they know to prepare before a trip and they talk to their friends — but if they are attracted to something, they will buy it immediately,” Rodriguez said, adding that retailers need to understand how to capitalize on the Gen-Yers’ wish to impulse-shop.

The rise of low-cost airlines will also greatly affect the industry and the region’s traveling habits over the next two years, said Peter Harbison, executive chairman of Centre for Aviation, an organization that provides aviation trends and analysis.

“Most of the next-generation aircrafts have been ordered by low-cost airline carriers — not by Singapore Airlines and not by Cathay Pacific,” Harbison said, adding that low-cost carriers are planning for longer-haul trips, which could affect consumer patterns.

“It would be very difficult to pick where the buying preferences will be, and — unlike in the past — this is something that is going to change very quickly,” said Harbison.